This constitution compiles the rules of a market fitting compensation system. However it is not meant as learning material — you don’t learn a new game by reading the rules. We all just learn by playing.

Preamble

This “Constitution” defines rules and processes for the sharing of company income between value and/or performance contributors regarding market fitting. The “Ratifiers” are adopting these rules as the formal compensation structure for the “Organization” specified upon the Constitution’s adoption, which may be an entire entity or a part of one that the Ratifiers have authority to govern and run.

The Ratifiers and anyone else who agrees to take part in the leadership and operations of the Organization (its “Partners”) may rely upon the authorities granted by this Constitution, and also agree to be bound by its duties and constraints.

This “Constitution” is a work in progress. Use it as an example for your own compensation system constitution.

Article I: Value and/ or Performance Contribution

A value and or performance contribution is the core requirement to be part of the compensation system

1.1 Definition of value and performance contributors

Any kind of involvement by a person, a system or a cluster of systems and persons can count as a value and or performance contributor. It includes one or more of the following:

(a) an “Indication”, if it is a person usually the name and if necessary a marking to make it unique. If it is something else a descriptive expression e.g. Sales, Implementation, Marketing etc.

(b) the “Percentage” that indicates his/her/its value | performance contribution comparatively related to his/her/its direct neighbors. The sum of all contributors belonging to the same node is always 100%.

(c) one parent node (minimum to the root node “Company”)

(d) as many as necessary children nodes.

1.2 Responsibility of value | performance contributors

1.2.1 Picture the context

Value | performance contributors are used to describe the generated values and services for the company. At that they explain how the compensation works and why it’s done like this.
The company is the root of the distribution. The employees are the leaves which bring in the energy. The objective nodes between root and leaves picture the trunk limbs, branches and leaves. Like this every degree of detail can be drawn.

1.2.2 Income flow through

Adjusted to all other value | performance contributors they show and accept their share of income as weighted by the unique percentage of each contributor.
Persons appear as leaves. They can turn up at the end of various branches. The total income of one Person equals the sum of all his/her leaves income.

Artikel II: Market Fitting

Income is strictly bound to the dynamics of the economic success of the company

The distributed money depends directly to the generated proceeds of the company. After subtracting all other costs like e.g. material, rent, credits, power, heating, savings, making provisions, dividends etc. the remaining money builds the amount which can be handed out. This leads to various consequences:

The company doesn’t spend money it doesn’t earn.

Income becomes dynamic.

All employees form naturally an entrepreneurial way of thinking.

Every Person has a direct link between his/ her work and the market reaction to it.

Artikel V: Shaping Possibilities

All affected employees participate

There are systems, ways and panels installed which guarantee every concerned colleague to be able to influence the processes, structures and evolution of the organization. Nobody can change the value | performance cascade without the inclusion and commitment of all affected persons.